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Characteristics of New and First-Time Home Buyers

Special Studies, September 1, 2010
By Heather Taylor
Senior Research Associate
Economics & Housing Policy
 
Report available to the public as a courtesy of HousingEconomics.com
 

Introduction

Home builders and policy makers are both trying to better understand the same audience—the home buyer. This article provides information on two important groups of home buyers—those who bought a brand new home, and those who bought a home for the first time. For builders, information on who is (and who isn’t) buying new homes is useful for marketing purposes. Information on first-time buyers is also important, because in addition to providing customer data for builders who specialize in the starter home market—first-time buyers represent an increase in the demand for owner-occupied housing units. Information on first-time buyers is also of interest to policy makers seeing to address barriers to home ownership. For policy makers interest in stimulating jobs, new home buyers are particularly important, because building a new home generates more jobs than selling an existing one [see Emrath, P. (2009, January 9), Economic Effects of a Policy to Stimulate Home Buying].

 

In this article we will specifically look at characteristics of the buyer, characteristics of the home, and the process of buying a home. For the purpose of comparison, the article will also discuss existing home buyers and trade-up home buyers. A home in this article refers to either a single-family attached, single-family detached, or multifamily home.

 

Among the key findings for buyers of new homes is that they are, on average, about 42 years old, had an average household income of $101,811, and bought a house with an average market value of $315,395. New homes accounted for 17 percent of the homes sold. First-time home buyers are, on average, 34 years old, had an average household income of $67,342, and bought a house with an average market value of $184,091. Thirteen percent of first time buyers purchased a new home.

 

The American Housing Survey Data

 

This article uses data from the most recent (2009) American Housing Survey (AHS). The AHS is a biennial survey of housing units, conducted in odd-numbered years by the Census Bureau for the Department of Housing and Urban Development. The 2009 AHS contains 3,043 interviews with households who bought a home during the two years prior to the survey. Each unit is assigned a weight by the Census Bureau that allows extrapolations about the entire US population to be made based on the results obtained from these interviews. The results show that about 8.4 million households bought a home between 2007 and 2009.

 

The New Home Buyer

 

Among the 8.4 million households that bought a home in the past two years, 17 percent bought a new home. This share is down from 21 percent in both 2005 and 2007, indicating that the new home segment was suffering disproportionately during the latest housing market downturn. (see graph 1). Sixty-nine percent of these new home buyers had previously owned a home.

Graph 1. Share of All Buyers 

The average age of the new home buyer is 42 years old, almost identical to the existing home buyers average age of 41. Thirty-eight percent of these householders were under age 35, 24 percent were between 35 and 44, 16 percent were between 45 and 54, and 21 percent were over age 55.

Although there is almost no difference in age between new and existing home buyers, there is a big difference in income. The new home buyer has an average income of $101,811. Almost 25 percent above the existing home buyers average of $81,623. About a third of new home buyers make less than $60,000, another third make between $60,000 and $99,999, and the remaining third make $100,000 or more. Since 2001, the average new home buyer’s income has been between 11 and 15 percent higher than that of all home buyers; however in 2009, the average income spiked to 20 percent above the average income of all home buyers (see graph 2).

Graph 2. Percent Above or Below the Income of All Buyers

About three quarters of both new and existing home buyers are white non-Hispanics. Nine percent of new home buyers are black non-Hispanic, 8 percent are Hispanic, and 5 percent are Asian.

Two thirds of new home buyers are married—39 percent are married with children, and 28 percent are married without children. Sixteen percent are single person households, and 4 percent are single parent households. About half of existing home buyers are married, and compared to new home buyers, about 5 percentage points more are single persons, and almost twice as many more are single parents.

The average household size for new home buyers is 2.75 persons, slightly more than the 2.64 average among existing home buyers. Sixteen percent of new home buyers are 1 person households, 38 percent are 2 person households, 18 percent are 3 person households, 19 percent are 4 person households, and 10 percent are 5 or more person households. Compared to existing home buyers, new home buyers have a smaller share of 1 person households and a larger share of 4 person households.

Starting in 2001, the average household size of a new home buyer had been increasing until it reached its peak in 2005 at 2.95 persons. Then the average began declining, bringing it, in 2009, to a new 9 year low of 2.75 persons (see graph 3). On the other hand, the average household size of an existing home buyer has been steadily decreasing since 2001, reaching its bottom in 2009 with 2.64 persons. The 2009 decline in household size of a new home buyer could be attributed to the five points decrease in the number of new home buyers that are married couples with children. In 2007, 44 percent of new home buyers were married with children, while in 2009 only 39 percent were (see graph 4).

Graph 3. Average Household Size

Graph 4. Percent of Buyers that are Married with Children 

All of these facts about the new home buyer can be found in table 1.

 

TABLE 1. CHARACTERISTICS OF HOME BUYERS 

The First-time Home Buyer

Forty-one percent of the 8.4 million who purchased a home in the last two years were first-time buyers. This share is up from 35 percent in both 2005 and 2007 (see graph 1). The initial version of the Home Buyer Tax Credit, signed into law in the middle of 2008, specifically targeted first-time buyers.

There is about a ten year age difference between first-time buyers and trade-up buyers on average. The average age of the first-time home buyer is 34 years, while the average age of the trade-up buyer is 46. Sixty-two percent of the first-time buyers were under age 35, while only 6 percent of these householders were over age 55.

The average income of first-time home buyers is $67,342. This is about 20 percent below the average of all home buyers and about 30 percent below the average income of trade-up buyers. About half earn less than $60,000, and a third earn between $60,000 and $99,999. About 18 percent of first-time home buyers earn $100,000 or more, while almost twice as many trade-up buyers earned this much. Since 2001, the average income of first-time home buyers has been about 20 percent below that of all home buyers (see graph 2).

About two thirds of first-time home buyers are white, non-Hispanics, compared to 82 percent of trade-up buyers. Of the remaining third, 12 percent of first-time buyers are black, non-Hispanic, 11 percent are Hispanic, 8 percent are Asian, and 2 percent are some other race or ethnicity.

About a quarter of first-time home buyers are married with children, 19 percent are married without children, 22 percent are single person households, and 8 percent are single parent households. Trade-up buyers are more likely to be married than first-time buyers. Twenty-six percent of trade-up home buyers are married without children and 34 percent are married with children.

The average household size for first-time home buyers is 2.58 persons, slightly less than the 2.71 average among trade-up buyers. Twenty-two percent of first-time homebuyers have 1 person households, 37 percent have 2 person households, 18 percent have 3 person households, and 23 percent have 4 or more persons in their household.

The average household size has been declining over the years. First-time home buyers in 2001 had an average household size of 2.87, compared to 2.76 in 2003, 2.73 in 2005, 2.72 in 2007 and 2.58 in 2009 (see graph 3). The decline in average household size for first-time home buyers can be attributed to a rise in number of single person households and a decline in the number of married couples with children households. In 2001, 33 percent of first-time home buyers’ households were married couples with children, in 2003 and 2005, 31 percent, in 2007, 29 percent, and in 2009, 26 percent (see graph 4).

In 2001, 18 percent of first time home buyers were single persons, in 2003, 19 percent, in 2005 and 2007, 20 percent and in 2009, 22 percent (see graph 5).

Graph 5. Percent of Buyers that are Single Persons

All of these facts about the first-time home buyer can be found in table 1.

New Homes Purchased

On average, new home buyers are purchasing higher priced and bigger homes than existing home buyers. The average market value of a new home purchased is $315,395, compared to $238,401 for existing homes, and $252,601 for all owner occupied homes. Compared to existing homes, less than half as many new homes were purchased for less than $150,000—19 percent of new homes compared to 41 percent of existing homes. On the other end of the spectrum, 10 percent of new homes were purchased for $600,000 or more, compared to only 6 percent of existing homes.

In 2001, the average market value of a new home purchased was 26 percent above the average market value of all (new and existing) homes purchased. This percentage steadily decreased to 18 percent in 2007. Then, in 2009 the percentage difference spiked up to 25 percent, very similar to the 2001 percentage (see graph 6). Between 2007 and 2009, home prices dropped—the average market value of a home purchased in 2007 was $298,966, compared to $251,317 in 2009. Fewer buyers purchased new homes in 2009, than in 2007, because of the 2009 depressed home values. In 2009, 17 percent of all buyers purchased new homes, compared to 21 percent of all buyers in 2007. This decrease in home value and decrease in new homes purchased, accounts for a wider disparity between the price of all homes purchased and new homes purchased in 2009.

Graph 6. Percent Above or Below the Price of All Homes Purchased in Previous Two Years

New home buyers are also purchasing larger homes than existing home buyers. The average square footage of the new homes purchased is 2,309 square feet, compared to 1,700 for existing homes and 1,800 for all owner-occupied homes. Compared to existing homes, twice as many new homes purchased were 2,500 square feet or more—44 percent of new homes, compared to 22 percent of existing homes. On the other hand, 14 percent of new homes were under 1,500 square feet, compared to 36 percent for existing homes.

The large majority, 87 percent, of new homes purchased were single-family detached, while 11 percent were single-family attached, and 3 percent were multifamily condos.

All of these facts about new homes purchased can be found in table 2.

 

TABLE 2. CHARACTERISTICS OF HOMES PURCHASED

Homes Purchased by the First-time Buyer

On average, first-time home buyers are purchasing lower priced and smaller homes than trade-up buyers. The average market value of a first-time buyer’s home is $184,091, compared to $297,481 for trade-up buyer homes, and $252,601 for all owner occupied homes. Almost half of all first-time home buyers purchased a home for less than $150,000, while just under a third of trade-up home buyers did. On the other end of the spectrum, less than 10 percent of first-time home buyers bought a home with a market value of $400,000 or more, while about a fifth of trade-up buyers could afford a home of this value.

The median square footage of first-time buyers’ homes is 1,500 square feet, compared to 2,000 for trade-up buyers and 1,800 for all owner-occupied units. Compared to trade-up buyers, twice as many first-time buyers purchased homes smaller than 1,500 square feet—46 percent of first-time buyers, compared to 24 percent of trade-up buyers. On the other hand, only 7 percent of first-time home buyers purchased a home of 3,000 square feet or more, while more than three times as many trade-up buyers purchased a home this big.

The large majority, 82 percent, of first-time home buyers purchased a single-family detached home. The remaining 18 percent are split evenly between single-family attached homes and multifamily condos.

More trade-up buyers are buying new homes than first-time buyers—a fifth of trade-up buyers, compared to 13 percent of first-time buyers.

All of these facts about the homes purchased by first-time buyers can be found in table 2.

Home Buying Process: New Homes

On average, both new and existing home buyers looked at 15 homes before purchasing a home. Just over a third of new home buyers looked at 15 or more homes, 17 percent looked at between 10 and 14 homes, 28 percent between 2 and 9 homes, and 17 percent looked at only 1 home.

Thirty-nine percent of new home buyers used their savings as the down payment for their new home, 34 percent used the sale of their old home and 16 percent used no down payment when purchasing their new home. About half of existing home buyers used their savings to purchase their home, and slightly less than a quarter used the sale of their old home.

The percent of new home buyers with no down payment has steadily increased from 5 percent in 2001 to 16 percent in 2009 (see graph 7). Since 2001, the percent of new home buyers who used the sale of their old home as a down payment has been in the mid to high 40s, but this percentage dropped 14 points, from 48 percent in 2007 to 34 percent in 2009 (see graph 8). This increase in new home buyers with no down payment and decrease in those with a down payment from the sale of their old home could be due to an increase in the share of first-time home buyers—41 percent in 2009, compared to 35 percent in 2007.

Graph 7. Percent of Buyers with No Down Payment

Graph 8. Percent of Buyers Who Use Sale of Old Home as Down Payment

 

The AHS asked the buyer to list all reasons for choosing a particular home. Layout/design, size and price were the top three reasons both new and existing home buyers choose a home. However, more new home buyers chose their home because of its layout/design than existing home buyers—54 percent of new home buyers, compared to 36 percent of existing home buyers. New home buyers were less likely to choose their home because of the price than existing home buyers—22 percent of new home buyers cited price as a reason, compared to 33 percent of existing home buyers. Twenty-one percent of new home buyers cited the quality of the home as a reason for choosing it, while only 15 percent of existing home buyers did. Existing home buyers were more concerned with the yard/view, the exterior and the availability of the home than new home buyers. Twenty-one percent of existing home buyers chose their home because of the yard/view, while only 13 percent of new home buyers did. Sixteen percent of existing home buyers chose their home because of the exterior, while only 11 percent of new home buyers did. Three percent of existing home buyers chose their home because of its availability, while only 1 percent of new home buyers did.

The AHS also asked buyers to list all reasons for choosing a particular neighborhood. The two most popular reasons among new home buyers were the looks/design of the neighborhood and that neighborhood was convenient to work—32 and 31 percent, respectively. About a quarter of new home buyers chose the neighborhood because of the house itself. Eighteen percent of new home buyers chose the neighborhood because it was close to friends/family and thirteen percent of new home buyers choose the neighborhood for its good schools. Nine percent of new home buyers chose the neighborhood because of its proximity to leisure activities, 3 percent because the neighborhood is close to public transportation, and 2 percent because of other public services.

The reasons buyers chose a neighborhood vary only slightly between new home buyers and existing home buyers. Only two reasons were more popular among new home buyers—the looks/design of the neighborhood and that the neighborhood was convenient to work were chosen by 3 percentage points more new home buyers than existing home buyers. The remaining reasons were chosen more often by existing home buyers than by new home buyers. More existing home buyers chose their neighborhood because it was close to friends/family than new home buyers—24 percent of existing home buyers, compared to 18 percent of new home buyers. The remaining reasons differed by 2 percent or less.

All of these facts about the process of buying a new home can be found in table 3.

 

TABLE 3. CHARACTERISTICS OF THE HOME BUYING PROCESS

Home Buying Process: First-time Buyers

On average, first-time home buyers looked at 15 homes before purchasing a home, and similarly trade-up home buyers looked at 16 homes. Half of the first-time home buyers looked at 10 or more homes, while only 10 percent looked at one home before purchasing the home.

Sixty-three percent of first-time home buyers used their savings as the source of their down payment, and 22 percent had no down payment. Forty-two percent of trade-up buyers used the sale of their old home as the down payment, 36 percent used their savings, and only 12 percent had no down payment. Although historically the percent of first-time home buyers with no down payment has been increasing since 2001, there was a drop from 2007 to 2009 (see graph 7). In 2001 only 10 percent of first-time home buyers had no down payment, then 13 percent in 2003, 20 percent in 2005, 25 percent in 2007, and finally 22 percent in 2009. Although the share of first-time home buyers who use their savings as a down payment has been steadily decreasing from 72 percent in 2001, it took a small jump from 57 percent in 2007 to 63 percent in 2009 (see graph 9). It is not surprising that the share of first-time buyers with no down payment has declined recently, as credit standards have tightened.

Graph 9. Percent of Buyers Who Use Savings as Down Payment

For first-time and trade-up home buyers the three most common reasons for choosing a particular home were price, layout/design, and size. More first-time buyers chose their home because of price than existing buyers—38 percent of first-time buyers, compared to 27 percent of trade-up buyers. More trade-up buyers chose their home because of yard/view, layout/design, quality, size and exterior than first-time buyers. Twenty-two percent of trade-up buyers chose their home because of the yard/view, compared to 16 percent of first-time buyers. Forty-one percent of trade-up buyers chose their home because of the layout/design, compared to 36 percent of first-time buyers. Eighteen percent of trade-up buyers chose their home because of the quality, compared to 13 percent of first-time buyers. Twenty-five percent of trade-up buyers chose their home because of the size, compared to 21 percent of first-time buyers. Seventeen percent of trade-up buyers chose their home because of the exterior, compared to 13 percent of first-time buyers. The remaining reasons, the kitchen and the availability of the home, differ by 3 percent or less.

For first-time buyers, the most common reason for choosing a neighborhood, at 31 percent, was that the neighborhood was convenient to work, followed by 28 percent reporting that the house itself was an important consideration, 27 percent the looks/design of the neighborhood, and 23 percent the proximity to their friends/family. While not ranked in the same order, these four reasons are also the top four reasons trade-up buyers bought their home in that particular neighborhood. More first-time buyers chose the neighborhood because it was close to their work than trade-up buyers—31 percent of first-time buyers, compared to 27 percent of trade-up buyers. Fewer first-time buyers chose the neighborhood because of the looks/design of the neighborhood than trade-up buyers—27 percent of first-time buyers compared to 32 percent of trade-up buyers. The remaining reasons first-time and trade-up buyers chose the neighborhood differ by only 3 percent or less.

All of these facts about the process of purchasing a home for first-time buyers can be found in table 3.

The complete results from each AHS conducted between 2001 and 2007 are available as files that can be opened or downloaded from the “additional resources” box.

Conclusion

While new home buyers only account for 17 percent of the home buying population they are a very important group. New home buyers are buying bigger more expensive homes than trade-up buyers, and although they are the same age as the average home buyer, they are making more money. Two thirds of them are married and they have about 2.75 people in their house. Almost three quarters of them pay for their house with their savings or the sale of their old home. The most important thing when choosing a home is the design/layout of the home.

First-time home buyers make up 41 percent of the home buying population. They tend to be a little younger and make a little less money than the average home buyer. The homes they buy tend to be smaller and less expensive than the average home buyer. Only 45 percent of them are married and their average household size is 2.58. Sixty-three percent of them pay for their home’s downpayment with their savings. The two most important things first-time home buyers look for when choosing a home are price and layout/design.

For more information about this item, please contact Heather Taylor at 800-368-5242 x8503 or via email at htaylor@nahb.org.


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